Mrtp Case No. C-57/09/DGIR (26/28) of Dy. Chief Materials Manager, Integral Coach Factory, Chennai v. M/s Celtek Batteries (P) Ltd., Bangalore & Ors.

CCI27 Jul 2011MRTP Case No. C-57/09/DGIR (26/28)

Case brief

AI extract

What is this about?

The Commission investigated complaints regarding alleged cartelization by battery suppliers in tenders for Integral Coach Factory. The Director General found that procurement rules mandated purchases from approved suppliers only and no cartelization occurred.

What the court decided

AI extract

Mrtp Case No. C-57/09/DGIR (26/28) of Dy. Chief Materials… — Company and Corporate | CCI (2011)

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Date of Order:ZZ 2- 011

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MTP Ca4k tsio,

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-Fne present matter before the Commission arises out of the two complaints

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Practices Commission (MRTPC) which was later transferred to the Competition

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Commission of India (the Commission) under Section 66 (6) of the Competition

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been filed against certain suppliers of Lead Acid Batteries , namely, M/s Cl-itek

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3, The facts as mentioned in the complaint, in brief, are as under:

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3,1 As per the complainant, Integral Coach Factory i production unit

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06/08/1308 for the procurement of 14000 sets of 120 AH Batteries. This

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participated. According to the complainant, it had procured 120 AH

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formation by RDSO approved firms, it was considered that there was a

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Committee to bring down the rates by means of negotiations and M/s

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Mysore Thermo Electric Ltd. (OP-2) was called for negotiations on

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1 03.02.2009. However, the firm fnj~~ O~ 11 11 1 111 11

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option, except to proceed with the procurement of this item, without

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3A The second complaint dated 25.03.2009 sent by the complainant to the

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procurement of 304 sets of 90 AH Batteries, which was opened on

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~#Iarticipatecl- The complainant had earlier procured this item throuz

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PVC, the effect of same was updated to the date of Tender opening arz updated basic rate was taken at Rs.82,599.68 per set, Compared to this

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updated last purchase basic rate, the rate received in the Tender open~f;'

35 According to the complainant, the rate quoted by the lowest acceptab le firm was higher by 5.05% over the last purchase order rate even after

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formation, the firm quoting the lowest acceptable rate was called for negotiations to bring down the rates, During negotiations, M/s CeltEM

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been impacted, a part quantity order was placed to meet the urgel

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the complainant has alleged that the firms engaged in the suppiy of

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4 The Commission considered the matter and having formed an opinion under Section 26(l) of the Act that there exists a^{_prima facie_case,} referred the matter to the Director General (DG)^{for conducting}

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took a view that since the allegations pertain to the alle.M cartelization in the bidding process, the conduct of Opposite Partitz

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the Act, Accordingly, the investigation was conducted by the DG in light ofthe iisaid provisions II.II the TTAct.

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secondary) from the complainant and the Opposite Parties. In the process, the DG also examined the Tender documents, alleged escalation in the rates in the two Tenders under investigation and compared the data with the previous as well as subsequent Tenders (M ICF. Facts and evidences were gathered through a detailed questionnaire from various parties and information was also obtained from the other RDSO approved suppliers, who had not participated in

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53 The DG, after analyzing the facts of the case, arrived at a conclusion that the

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Tenders of ICE which were the subject matter of investigation required the

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said Tenders, which could be procured only from the RDSO approved investigation in the case as procurement of 120 AH and 90AH Lead Acid

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respectively.

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54 DG has examined the procurement system of Indian Railways in detail in hl

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report. It has been gathered in course of investigation that the work (M

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broadly divided into two categories; a) Part 11 vendors - A new or fresh supplier on completion of formalities as specified by RDSO in this regard and

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basis. Part-11 suppliers may also be upgraded as Part-I supplier, if all the

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RDSO has granted approval to 8 firms under Partl category and 2 firms

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approval to 7 firms under Part-it sources. There is no Part -1 approved firm f(M

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for lightening and ventilation of coaches manufactured by^{it.; all other Zons} Railways have also been procuring the two types of batteries in order to replace them in the coaches owned and operated in various divisions, I

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5.6^{As regards Tenders which are under the subject matter of investigation, the}

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Lead is the major raw material constituting approximately 75%^{of the cost} (I battery, Generally the quotes are submitted based on the Lead price prevailing one month prior to the opening of the tender. At the time 11 comparison of bids, Price Variation Clause (PVC) effect for the raw materials

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considered on account of increase in the prices of other inputs and

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cartel. However, since the items were necessary to be procured,~

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at a later date at a lower cost.

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5.8 In reply before DG, Railway Board has stated that the vendors are approved

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vendor approval document, expression of interest is published in the

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59 As per the submissions of RDSO before DG, Railway Board issues directives

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these directives, it registers the manufacturer of these items as per the relevant vendor approval procedure laid down by it. RDSO has also

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submitted that its role in the procurement process is limited to the grant of approval and monitoring of field performance and it does not play any role I price determination of any item. According to RDSO, as per relevant

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the RDSO approved suppliers regarding their participation in various tenders

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5,11 Before DG, it was submitted by Celtek Batteries (OP-1) that it ihad participated in both the Tenders dated 12.11.08 and 03.11.08 of lCF und"M the DG that the quoted rates were based on the prevailing market price including raw materials, power, transport and labour etc. and also furnished the manner of calculation of the quoted rates in Tenders of 120 AH and 90 AH Lead Acid Batteries issued by 11CF. OP-1 also informed the DG that it has a practice of charging certain percent of material cost towards wastage and

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charges. The margin is calculated as percentage of the total manufacturing

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Eastern Railway's Tender dated 19.12.08 because while batteries for ICF uncharged conditions, Further, higher quoted rates were also due to the fact that for the supply of charged batteries, additional freight charges well whereas they can supply a minimum of 350 batteries^{in uncharged} conditions in one truck), in addition, charged batteries also require highij loading and unloading charges, therefore, the quoted^{rates fortheir}

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90AH battery in lCF Tender dated 03.11.08, OP-1^submitted^{before the DG} that the quoted rate was less than their own calculated price per set based on cost. As regards increase in quoted price, it has been stated that they all

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a Part-11 supplier for these types of batteries and eligible to receive only :iS

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20% of the total tender quantity, if considered. Since they were eligible to

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5,14 According to M/s Mysore Thermo Electric Pvt. Ltd. (OP-2), it is^{a Part-1}

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variation in the cost of raw materials and other input costs. It was further mentioned that prices were quoted after taking into account factors like freight, handling expenses and also the ordered quantity to be delivered at

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5 t1S!JI � .1 1.1 during the period, input

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items which are very critical to the production of battery^{— i.e. Lead,} t1_1 major raw material and Sulphuric Acid had become^{very sca;rce and had to} "a

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also due to increase in the transportation cost due to the fact that batteries

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with a view to procure enhanced orders for 120AH Batteries (as during the

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and supplied only 90 AH Batteries. The Tender rates were determined through a consultative process by^{the top management taking into account}

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factors like manufacturing cost, results of past tenders for the like items. number of orders in hand, location of delivery points and other market

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5.17 OP-3 further informed DG^{that higher Tender rates were also quoted due to}

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the fact that batteries were to be supplied in charged conditions which entailed higher cost on account of the cost of electrolytes, energy, labour, overhead, additional freight ,^{loading and unloading charges. It was also} 'Tiformed that it had explained ICF,^{the reasons for increase in prices ~i}

Mrtp Case No. C-57/09/DGIR (26/28) of Dy. Chief Materials Manager, Integral Coach Factory, Chennai v. M/s Celtek Batteries (P) Ltd., Bangalore & Ors.

Case brief

What is this about?

What the court decided

Mrtp Case No. C-57/09/DGIR (26/28) of Dy. Chief Materials Manager, Integral Coach Factory, Chennai v. M/s Celtek Batteries (P) Ltd., Bangalore & Ors.

Case brief

What is this about?

What the court decided

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Issues for consideration

Statutes considered

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